Turning 65 in 2016? Here's What You Need to Know

Hitting this milestone age means you'll have some financial planning to do.

Historically, 65 has been a milestone age for Americans, with many targeting their 65th birthdays as their retirement date. With longer lifespans and financial challenges, more people are looking at working beyond age 65. But no matter what you decide to do with your career, there are still some important financial actions you need to take or at least consider when you turn 65. Let's take a look at the key financial issues for 65-year-olds to think about.

Time to sign up for MedicareMost Americans become eligible for Medicare when they turn 65. To get your benefits, you have to sign up. Medicare allows you to sign up at any time during what's known as the initial enrollment period, which begins three months before your 65th birthday. If you sign up before the month in which you turn 65, then your Medicare coverage will start on the first day of your birthday month. If you wait until the month you turn 65, then your coverage will start one month later. Delays of two to three months apply if you wait until the latter part of the initial enrollment period, so getting an early jump on enrolling is a smart move if you want your Medicare coverage to start as soon as possible.

Also, note that even if you're still working and covered by a group health insurance plan at work, you should still look at Medicare coverage. Some group plans at smaller employers of 20 employees or fewer make Medicare the primary coverage for workers who are 65 or older, so your plan could refuse to cover expenses if you fail to sign up. For larger employers, group coverage is the primary provider, so signing up for Medicare isn't always as important.

Social Security doesn't think you're at full retirement age Even though 65 is a common time people think of retirement, the Social Security Administration no longer shares that view. For those who are turning 65 in 2016, the full retirement age is 66, and so you won't be entitled to your full benefits until 2017.

That doesn't mean you're not allowed to take benefits at all. If you do claim your Social Security at age 65, then you'll receive about 6.7% less in your monthly payment than you would get at full retirement age.

If you claim Social Security and continue to work, then you'll be subject to the earnings limitations that the program imposes. If you earn more than $15,720, then you'll forfeit $1 of annual benefits for every $2 you earn above that amount. If you retire and claim benefits mid-year, however, a monthly prorated limitation applies, and your earnings prior to retirement aren't included in the calculation.

The IRS will give you some benefitsIncome tax rules give those who are 65 or older some extra benefits. For instance, if you take the standard deduction, you're entitled to a larger amount if you've reached age 65. For joint filers in 2016, each member of the couple who is 65 or older gets an additional $1,250 on top of their regular standard deduction. For singles, the add-on is $1,550.

In addition, low-income taxpayers who are 65 or older can qualify for the Credit for the Elderly. This provision offers substantial tax reduction for singles earning less than $17,500 or joint filers earning less than $20,000 to $25,000 depending on whether one or both spouses is 65 or older. The credit is limited to the amount of tax liability, and other restrictions apply, but for some, the credit will essentially wipe out some or all of any taxes they would otherwise owe.

Turning 65 is something to celebrate, but financially, there are steps you should take to get all the benefits you're entitled to receive. By being proactive, you can make sure you get all the advantages of reaching senior-citizen status that you deserve.

Author

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.
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